• Porter DeVries

Legal Tips for Running a Family Business

Running a business is hard work. Running a family business can be even harder. Mixing family and business, while potentially rewarding in many ways, also adds challenges to the mix. All businesses of all sizes require investments of energy and capital, and strong legal foundations and regular legal maintenance – this is especially true for family businesses. To start your family business on the right foot and increase chances of enduring success, ensure that you and your partners:


Choose the right form of business entity.

First, you should absolutely form a business entity to carry out the family business. Forming a business entity protects the owners from legal liability for the businesses’ debts and actions, such as bankruptcy, delinquency and litigation. Choosing which kind of business entity is right for your business can be a more involved process, and the “right” answer typically depends on many factors. Consulting a business law attorney can be a good first step to exploring your options, as well as making sure all legal documents are filled out and filed correctly.


If a married partners are involved, make a prenuptial agreement.

Whenever married partners are in business together, a prenuptial agreement makes a lot of sense and can protect both parties and the business. A partnership agreement related solely to the business can also be beneficial, but a prenuptial agreement as part of married partners’ estate planning makes sure if the marriage should come to an end, the business can continue thanks to specific instructions on separate property and assets in the prenuptial agreement.


Document, document, document.

Working with family can make it tempting to fall into informal patterns when it comes to agreements and finances. But as with any business, everything should be documented and formal. No one wants to think the worst might happen between family members, but handshakes and promises can’t resolve disagreements over compensation or expectations, and informal financial arrangements certainly won’t stand up to audits. Informal arrangements can also impede a company’s growth.


Create and maintain a succession plan.

According to the Small Business Administration, fewer than 30 percent of family businesses survive to the second generation. There are many factors that could affect the longevity of a family business, but not having a succession plan can be the death knell of any business. Ideally, all family members in the business should be involved in succession planning, and the transition period should be long enough to provide adequate training, experience and authority for the next generation.

We want to help you build an exceptional business. Schedule a free consultation today: 808-465-2500.

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